Some time after creating heaven and earth, God created dinosaurs and associated vegetation, which he then squidged for millions of years to create petroleum and other carbon-based fuels such as natural gas and coal. This happenstance was no trouble to anyone (except maybe dinosaurs) until the last century of the second millenium, when homo sapiens based the entire world economy on hydrocarbon fuels and almost instantly (in historical perspective) burned half of them.

That, in a nutshell, is the energy crisis. What is going on in California is symptomatic of what happens as people try to maximize profits when burning the last half of the fuel reserves.

Lest I sound like a hair-shirted, sweater-wearing prophet of environmental and economic doom, let me say that I firmly believe the current "energy crisis" is eminently solvable, and there are lots of things that we can do about it, both individually and as a society. All it takes is a little understanding of some recent regulatory and legislative outrageousness.

Regulatory shenanigans

For the past 20 years, California utilities fought huge battles against the provisions of PURPA, the federal act requiring utilities to buy power from independent producers. Indeed, the utilities at one point actually got the Federal Energy Regulatory commission to overrule California regulators and cancel the last round of renewable contracts known as "BRPUs" based on an apparent "huge surplus of energy." In all fairness, the various renewable companies at the time didn't help by squabbling between themselves, and in some cases, filing lawsuits over the awarding of contracts.

Perhaps as a result of the intransigence of the utilities, California Public Utilities Commission (CPUC) and the California Energy Commission, in a move that amazed and frightened the utilities, decided to make power generating competitive. Convening a group of stakeholders including utilities, end users, and public advocates, they published in 1994 what is known as the "Blue Book" plan.

A result of over a year's work by hundreds of people, the plan looked very much like the deregulation plan that had been so successful in Australia, where power bills dropped by over a third, and in Europe, where alternative energy soon began to play an important part in power generation. It included specific non-fossil-fuel obligations, assistance for low-income users, and ways to protect utility investors from the expense of "stranded" facilities such as nuclear generating plants that could not compete in a non-monopoly environment.

Riding a wave of dollars

The utilities, seeing the direction of the CPUC, went around the regulators directly to the state legislature. The utilities crafted a bill - Assembly Bill 1890 - that ignored virtually all of the recommendations of the CPUC Blue Book. Floating through the legislature atop millions of dollars per year in campaign contributions, the bill became law in 1996.

The bill, packaged for political salability, promised to reduce utility bills immediately for large commercial users (it did), and reduce rates 20 percent by 2002 for consumers. It contained none of the safeguards and protections discussed in the Blue Book.

In practical terms, AB 1890 gave California power companies $28 billion dollars to capitalize the utility holding companies - not their regulated subsidiary utilities - and in an act of incredible arrogance, set up a scheme whereby the loss in revenue from price reductions would be covered by borrowing bond money. The bond interest is an additional charge on your utility bill! The bill also gave the utilities an absolute stranglehold on power distribution and for good measure added a "Competitive Transition Charge" to dampen interest in having independent power producers feed the utilities grid. You can also find this charge on your bill. Not surprisingly, after "deregulation" most consumer bills went up.

Monopoly muscle

The utilities further solidified their position with State Senate Bill 1194, which gave the utilities further guarantees on their distribution monopoly, and AB 970, the marvelously named California Energy Security and Reliability Act, whose true purpose is to allow the waiving of environmental and local siting rules for fuel-burning power plants. The cost of all these bills is ultimately borne by the ratepayers.

It is tempting to look at the utilities as stupid and incapable of "solving" the state's energy problems. Writer David Foster Wallace coined the expression "bovine predator," and that fits the utilities exactly. Within the framework they have operated, they have been hugely successful. All their past history has been directed at getting what they want out of regulatory and legislative bodies, and at this they have been skillful and very predatory.

Since 1996, the utilities have recovered from ratepayers more than $36 billion in "stranded asset costs." Add to that the latest $10-billion government-approved bailout, to be funded by bonds that will eventually be repaid by ratepayers - similar to the "cost reduction" promise of AB 1890. Also, if the utilities succeed in Federal Court, they will soon add another $10 billion or so to their pile. It would be a safe bet that the utilities will end up with more $60 billion from ratepayers, with no guarantee that one cent of it will be spent on improved infrastructure and longterm reliable power sources.

Wait, it gets worse

And by the way, the legal structure that protects the assets of unregulated utilities holding companies from being used to pay for the errors of the regulated portion of the company is embedded in (surprise) AB 1890.

The physical property that allows them to extract these funds from ratepayers is the power-distribution grid, which the PUC and the California Energy Commission values at $3.9 billion. That means that the holding companies, simply through legislative maneuvering, stand to net $60 billion on an asset worth less than a tenth of that - a ratio that even the most vaporous dot-com company might envy.

Pretty good going for the utilities, but where does their "bovine" aspect show itself? The utility holding companies are now operating in the unregulated markets with their old, slow arrogance, and in trying to play in the somewhat free national market, large, well-run independents have been cleaning their clocks.

The scorecard is kept by the stock market. There, shares of nimble power-marketers such as Enron have soared a lot higher than those of PG&E's parent. Simply, the utilities can not and will not solve the energy crisis because outside of their area of predatory legislative expertise, they stand there blinking and just sort of moo.

What can be done?

How can all this nonsense be stopped? First, by installing the legislative and regulatory safeguards that have made deregulation successful in other parts of the world. We already know about the desireability of long term contracts, mandated in other deregulation schemes. If the California legislators would stop raising campaign funds and just sit down and read the CPUC Blue Book, it would help

Write your representatives and congressmen to urge that the Federal Energy Regulatory Commission do its job. (It's empowered to regulate rates and stabilize the markets). The current administration's position that some sort of "Faith-based Power Generation" will solve the crisis ignores the pivotal role that the collapse of utility-combine stocks played in causing the Great Depression.

Most important, avoid giving the utilities any more anti-competitive protection, and start loosening their absolute monopoly over distribution. If that means taking over the distribution grid outright, as some legislators are considering, so be it.

In Part II: If your idea of a longterm solution does not involve giving oil companies tax breaks to drill the Alaskan wilderness so they can sell fuel to PG&E for power generation, then what kind of progress might we encourage instead? A look at both large- and small-scale technology, the grid and the future.

Hulls has worked extensively in conjunction with the Department of Energy, Sandia National Labs and private industry, on wind-turbine design for power generation. He has also written the portion on aerodynamics for wind energy in the Institute of Physics' Encyclopedia of Applied Physics.

Send this article to a friend

Go to Part Two

Copyright - John Hulls and The Point Reyes Light

P o i n t    R e y e s    L i g h t TOMALES BAY PUBLISHING CO.